Short selling and stock price crash risk

This paper aims to investigate short selling and stock price crash risk. The authors find that short selling is positively associated with one-month-ahead stock price crash risk, consistent with the literature showing that short sellers are informed traders. The authors attribute this prediction ability to the information short sellers receive from foreign investors with high levels of ownership in a firm. The results shed light on policy issues regarding short selling regulation.

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China's Closed Pyramidal Managerial Labor Market and the Stock Price Crash Risk

The Accounting Review ◽

10.2308/accr-51867 ◽

2017 ◽

Vol 93 (3) ◽

pp. 105-131 ◽

Cited By ~ 33

Author(s):

Donghua Chen ◽

Jeong-Bon Kim ◽

Oliver Zhen Li ◽

Shangkun Liang

Keyword(s):

Labor Market ◽

Stock Price ◽

Negative Association ◽

Political Connections ◽

Crash Risk ◽

The Political ◽

Market Forces ◽

Risk Averse ◽

Foreign Investors ◽

Managerial Labor Market

ABSTRACT Managers of China's state-owned firms work in a closed pyramidal managerial labor market. They enjoy non-transferable benefits if they choose to stay within this system. The higher up are they in this labor market hierarchy (their political ranks), the fewer are their outside employment opportunities. Due to career and wealth concerns, they are cautious and risk-averse when managing firms. We examine the effect of managers' political ranks on firms' stock price crash risk and find a negative association. This association mainly exists in firms with younger managers and managers with shorter tenure. Further, this effect is only significant in regions with weak market forces, in firms without foreign investors, without political connections, and during periods with no local government leaders' or managers' political promotions. We conclude that the political ranking system reduces the stock price crash risk. JEL Classifications: G30; J33.

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Foreign Investors, External Monitoring, and Stock Price Crash Risk

Journal of Accounting Auditing & Finance ◽

10.1177/0148558x19843358 ◽

2019 ◽

Vol 35 (4) ◽

pp. 829-853

Author(s):

Jeong-Bon Kim ◽

Xiaoxi Li ◽

Yan Luo ◽

Kemin Wang

Keyword(s):

Financial Reporting ◽

Stock Price ◽

Reporting Quality ◽

Crash Risk ◽

Accrual Quality ◽

Foreign Investors ◽

External Monitoring ◽

Risk Reducing ◽

Local Firms

We investigate whether foreign investors help to reduce local firms’ future stock price crash risk through their external monitoring. We find that the entrance of foreign investors is associated with a significant reduction in local firms’ future crash risk. Further investigation reveals that foreign investors help to improve local firms’ financial reporting quality from the perspectives of accrual quality, conservatism, and annual report tone management. The evidence is consistent with our conjecture that foreign investors play an important external monitoring role, which reduces managerial bad-news hoarding and thereby lowers local firms’ future crash risk. We also find that the crash risk–reducing role of foreign investors is more pronounced when foreign investors are more familiar with the institutional background of the host country, when they have stronger incentives to monitor local firms, and when local firms have higher governance efficacy. A variety of robustness checks reveals that our results are unlikely to be driven by potential endogeneity.

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Short Selling and Firms' Disclosure of Bad News: Evidence from Regulation SHO

Journal of Financial Reporting ◽

10.2308/jfir-52401 ◽

2019 ◽

Vol 4 (1) ◽

pp. 1-23 ◽

Cited By ~ 3

Author(s):

Gregory J. Clinch ◽

Wei Li ◽

Yunyan Zhang

Keyword(s):

Stock Prices ◽

Short Selling ◽

Bad News ◽

Good News ◽

Management Forecasts ◽

Timely Manner ◽

Short Sellers ◽

Informed Traders ◽

Sec Regulation ◽

Reputational Costs

As informed traders, short sellers enhance the informativeness of stock prices, especially related to bad news, potentially reducing the benefits and increasing litigation and reputational costs of withholding bad news by managers. We exploit a quasi-natural experimental setting provided by the introduction of SEC regulation SHO (Reg-SHO), which significantly reduced the constraints faced by short sellers for an effectively randomly selected subsample of U.S. firms (pilot firms). Relative to control firms, we find pilot firms increase the likelihood of voluntary bad news management forecasts, provide these forecasts in a more timely manner, and accelerate the release of quarterly bad earnings news. Each of these effects is stronger for subsamples of moderate (compared with extreme) bad news, firms facing high (relative to low) litigation risks, and firms with a forecasting history. Similar effects are not observed for voluntary good news forecasts. A range of robustness tests reinforce our results. JEL Classifications: G14; D22; K22; K41; M40.

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Retail Investor Attention, Foreign Investors and Crash Risk: Evidence on Indonesian Shariah-compliant Equities

Procedia Business and Financial Technology ◽

10.47494/pbft.2021.1.25 ◽

2021 ◽

Vol 1 ◽

Author(s):

Aang Kunaifi ◽

Geodita Woro Bramanti ◽

Muhammad Ibnu Sina Al Hanif

Keyword(s):

Capital Market ◽

Stock Price ◽

Crash Risk ◽

Foreign Investor ◽

Investor Attention ◽

Foreign Investors ◽

Quarterly Data ◽

Negatively Associated ◽

Retail Investor ◽

Active Attention

This study analyzes how retail investor attention and foreign investors are related to stock price crash risk in shariah-compliant equities. Using quarterly data in Islamic stocks that listed on the Indonesian Capital Market during 2016- 2019, we show that retail investor attention and foreign investors are negatively associated with stock price crash risk. The retail investor attention and foreign investors diminish stock price crash risk in shariah-compliant equities. In conclusion, the benefit of active attention that retail investor pay and increasing foreign investor mitigate crash risk in shariah-compliant equities

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Short-Selling and Information Arrival around Earnings Announcements: Evidence from Regulation SHO

The Accounting Review ◽

10.2308/tar-2018-0459 ◽

2021 ◽

Author(s):

Greg Clinch ◽

Wei Li

Keyword(s):

Stock Prices ◽

Earnings Announcements ◽

Public Information ◽

Short Selling ◽

Price Informativeness ◽

The Public ◽

Short Sellers ◽

Information Release ◽

Negative News ◽

Shed Light

Short sellers assist in impounding negative news more quickly into stock prices and improve price informativeness. However, there is a lack of consistent evidence about whether short sellers trade predominantly in anticipation of, or in response to, a public information release. To shed light on this question, we exploit Reg SHO, which reduced the constraints faced by short sellers for a subsample of U.S. firms, to examine price informativeness before, during and after earnings announcements. We show that relative to control firms, pilot firms have greater (less) price informativeness before (during) earnings announcements, suggesting that short sellers trade in anticipation of public earnings news, rather than in response to the public news.

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